Week 6: Seasonal/Recreation Bills, Supplemental Budget

Seasonal/Recreational Tax Base Replacement Aid: HF 4986/SF 4995 

School District data run provided

HF 4986 has been scheduled for a hearing on Tuesday in the House Education Finance Committee (10:30am-Noon). A preliminary data run for FY2026 was produced by Senate Fiscal analysts, showing the property tax changes on a $300,000 home that would occur if voters approve a $500/pupil levy. The bill would cover existing operating levies, so some communities would see immediate relief if the bill passes. The legislation comes with an initial cost to the state’s general fund of $8.4M.

Talking Points in support of this legislation include:

  • The proposal does not change how cabins are taxed.
  • The proposal still requires voters to approve an operating referendum question.
  • 92 school districts are at $0/pupil on the operating referendum when the state’s median operating levy is $513/pupil.
  • These 92 school districts are primarily in central and northern Minnesota where a significant number of Seasonal/Recreational (S/R) properties are located.
  • Some level of operating levy revenue is needed for most schools to pay competitive compensation and sustain programming.
  • S/R properties are exempted from the local school district “Referendum Market Value” tax base and instead pay property taxes into the state’s Business Levy. This hasn’t worked to help rural schools.
  • Fairness and a meaningful effort towards funding a ‘general and uniform system of schools’ requires legislative action to address the inequities that exist in school levy programs. The S/R Tax Base Replacement Aid is a targeted and efficient approach to achieving this goal.

How it works:

  • The bill creates a seasonal tax base replacement aid that reduces the local effort required for referendum levies, especially in school districts with a very substantial amount of class 4c(12) seasonal recreational residential property.
  • The tax effort on the referendum levy could be reduced by as much as 50% in a district where the cabin market value represents a substantial portion of the total market value.

DFL Supplemental Budget Plan Emerges

Last week saw a flurry of activity as the policy bill deadline landed on Friday evening. The week started with Governor Walz offering a modest supplemental budget plan, only to have that plan dropped by Friday afternoon as the DFL trifecta leadership announced a deal on supplemental spending targets.

After an aggressive budget process in 2023, Walz has consistently dug in against major new spending mid-cycle, instead wanting to push the emerging surplus into the next budget period. As the Fed continues to debate interest rates and battles inflation, and the Presidential cycle unfolds, there is economic uncertainty ahead and Walz doesn’t want to find himself cutting back on the budget he fought for next January.

Education spending will see a modest increase in the current biennium of $43M. The ongoing impact of any new spending this year, known as the “tails” are capped at $18.050M. This means most budget items in the Education supplemental spending bill will be one-time funding, as expected.

In total, the DFL Trifecta plan adds $477M in new spending into the current biennial cycle. The tails impact of the plan is a modest $62.7M. The details of the respective budget area targets will unfold when the legislature returns after they take a five day break for Easter this weekend. They return on Tuesday, April 2 and issue area supplemental budget bills are due by April 19. The legislature can pass bills until midnight on May 19.

MASBO Budget Survey – Student Support Personnel Aid

Just an FYI for school budget administrators, MASBO sent out a survey to members last week requesting information on school district budget projections. It also includes two questions requested by Sen. Mary Kunesh – how funding was used for the new student support staff and library aid. MREA encourages you to complete the MASBO survey as these responses are used to guide conversations at the Capitol.

Student Support Personnel Aid in particular will be a constant conversation as this revenue stream increases in years to come and MDE seeks legislation allowing schools to reserve these funds. The Cooperative and Intermediate portions of these dollars will be another target of discussion as the MDE is not proposing to extend this reserve authority to these entities at this time. Allowable uses will be a tug of war between administrators.